1. Chicago Board of Trade Market News

Outlook: The battle between weather risk and old-crop supplies continues. Weather risk seems to be falling but drought is spreading through the western Corn Belt. At the same time, old crop corn supplies are ample and any decent production this year will ensure more than sufficient supplies. The market is trying to figure out just how much risk the weather forecasts really have left.

December corn futures fell hard this week and are near their key support point for the past nine months. Weather forecasts turned more favorable with moderating temperatures and increased precipitation changes for much of the Corn Belt. With USDA’s report showing 62 percent of corn in good/excellent condition and 67 percent of the corn silking, the crop seems “good enough” to sell off some of the weather premium. At the same time, however, today’s Drought Monitor showed expanding drought in NE, IA, and (of course) MT and the Dakotas. This shows the crop is not fully without yield risk, and futures will continue to trade with some premium.

Old crop export sales this week totaled 3.6 million bushels, more than the 1.7 million needed weekly to reach USDA’s projections. New crop sales reached 19.2 million bushels, bringing the outstanding NMY sales to 157.5 million, less than last year’s 281 million. The report was neutral-to-bearish corn, especially given the 13-cent premium FOB NOLA corn carries to FOB Paranagua corn. The price difference may indicate Brazil is sufficiently competitive to stifle new-crop corn sales for the near future. That, combined with large carry-over stocks from the 2016/17 marketing year, may mean the U.S. will have more than enough corn this fall.

From a technical perspective, December corn is range bound, caught between major support at $3.75 and resistance at $4.05 and $4.15. The market sees $3.75 corn as “too cheap” given the lingering weather risks while prices over $4.00 are “too high” given that crop conditions aren’t that bad. Stochastic indicators show the contract as slightly oversold today and some modest upswing is likely in the coming days. However, bears won’t let the contract get too high without a fundamental reason (i.e., much worse crop ratings) holding them off. For now, choppy, sideways trading is the most likely outlook for corn’s harvest contract.

2. CBOT Corn Futures

CBOT December Corn Futures

Current Market Values:

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: In the 2 days since the Tuesday morning cutoff time of this week’s USDM, heavy rains moved across parts of the northern and central Plains and Midwest, and monsoon showers and thunderstorms brought additional rain to parts of the Southwest. For July 27-31, 1-2 inches of rain is forecast for parts of the Midwest to Mid-Atlantic region, coastal Southeast, and Southwest to southern High Plains. Rainfall amounts may be locally as high as 3 inches from the Midwest to Mid-Atlantic, as high as 5 inches in the coastal Southeast, and as high as 6 inches in the central Rockies to southern High Plains. Less than an inch is predicted for much of the Plains, Northeast, Great Lakes, and Lower Mississippi Valley, while no rain is expected for most of the Far West and parts of the northern and southern Plains. Temperatures are predicted to be warmer than normal in the West and cooler than normal in the East. For August 1-9, odds favor drier-than-normal weather in the Northwest, northern Plains, and Upper Mississippi Valley, and wetter-than-normal weather across the Southwest, southern Plains, and Southeast. The Northeast likely will start out drier than normal but end up wetter than normal. Odds favor warmer-than-normal temperatures for the West, northern Plains, and parts of the East Coast, and cooler-than-normal temperatures for the southern Plains to Ohio Valley.

Optional Origin Sales: The current optional origin outstanding balance for 2016/2017 of 122,000 MT is for South Korea (68,000 MT) and unknown destinations (54,000 MT). The current outstanding balance for 2017/2018 of 112,000 MT is for unknown destinations.

Barley: Net sales of 100 MT for 2017/2018 were down 99 percent from the previous and 95 percent from the prior 4-week average. Increases were reported for Japan. Exports of 100 MT were reported to Taiwan.

Sorghum: Net sales of 52,000 MT for 2016/2017 were reported for (China, switched from unknown destinations). Exports of 53,900 MT were down 9 percent from the previous week and 14 percent from the prior 4-week average. The destinations were China (51,500 MT) and Mexico (2,400 MT).

5. FOB

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Merchandisers are reporting that DDGS prices are more supply/demand driven right now than following corn/soybean futures prices. The barge market is supporting broadly higher prices but is keeping domestic delivered prices at a discount to containerized product. Sellers successfully increased domestic prices a few dollars without much resistance early this week, but weaker CBOT corn is generating some pushback late this week.

Domestically, merchandisers are noting DDGS are a “fantastic value” and that feed inclusion rates are being kept high. It’s easy to see why. DDGS are priced at 95 percent of cash corn and 37 percent of KC soybean meal and retain a $1.97 per-protein unit cost advantage over soybean meal. FOB Gulf DDGS are prices at 107 percent of corn’s value.

International interest is picking up, especially to Indonesia and South Korea, but the current price spread is limiting completed trades. U.S. ethanol plants and merchandisers are factoring in a significant carry in the corn market that is also being priced into DDGS. International demand, however, has been flat. Reportedly, there are several shorts in the export market trying to cover which is helping keep a carry in the DDGS market.

7. Country News

China: Sinograin sold 56 percent of the 3.35 MMT of reserve corn it offered for sale on July 21. Most of the grain sold was 2014 corn with an average price of 1,454 yuan ($215.80) with a small amount of 2013 crop sold at 1,265 yuan ($187.75). None of the imported corn offered for sale received a bid. Offers this week are to include 800 KMT of the 2014 crop 3.65 MMTs from 2013 and 2014 crops on Friday. (Bloomberg)

EU: The EU proposed reducing the biofuel mandate from 7 percent in 2021 to 3.8 percent in 2030 but the Impact Assessment Institute, a think tank, found “fundamental shortcomings” in the Commission’s Impact Assessment. Specifically, there was insufficient justification for a negative opinion as it lacked supporting analyses and failed to differentiate the GHG emission performance of the fuels. Environmental NGOs lump all crop-based biofuels together and are pressuring the Commission to completely ban them after 2020, insisting that only advanced biofuels should be used. (Euractiv)

India: The new Goods Services Tax (GST) is posing problems on implementation. Corn seed previously faced zero tax but now is charged 5 percent and ethanol will be assessed 18 percent, the second highest tax category. (Reuters; High Plains Journal)

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Global ocean freight markets are following a very familiar pattern. It is a bit like riding a roller coaster at the park; things go up for a week or two and then they roll back down. Many in the industry are expecting to see a steady market improvement (increase) take hold by the year’s end. I think the general consensus is that things have definitely bottomed out and eventually have to move upward. Of course, this theory is contingent upon continued scrapping of vessels and no increase in new building activity. Can owners do that? They always have an itchy hand that wants to grow the fleet at the first sign of improved economics. Hopefully the banks will keep them from doing that. It has been interesting to watch the Capesize market move in different directions than the Panamax and Supramax markets. This week the Capes were up while the smaller vessels were down.

Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China: